Impact of COVID-19 on Brisbane Apartment market

Short term impacts of COVID-19

• Lock-down laws are impacting real estate sales.  Open houses are banned.  
• Many auctions have been cancelled.    Public and onsite auctions are banned.
• Apartment buildings have closed their facilities, such as pools and gyms.  Some apartments have elevator restrictions (e.g. no more than 2 people or 1 family in an elevator at the same time.)
• Some tenants are asking for rent relief, despite a government scheme to assist tenants: See Courier Mail
• Some tenants are not renewing leases or going month-to-month.
• Vacation rentals are sitting empty.
• One property manager has cancelled all leases (probably illegally) - This property manager rents from property owners and then rents out to short term guests.  The landlords' rent has gone to zero.
• Holiday and short term rental apartments are entering the long term rental market, at discount prices: Courier Mail
• Some real estate agent's are misleading the market, saying things are good. For example, "there are still buyers out there wanting to buy" (but not saying at low prices), "real estate will become highly sought-after as we move forward", "property is still the safest haven to have your money in", "there are still positive things happening for buyers and landlords".

Longer term impacts of COVID-19

One agent says:

"Like most industries, it is not hard to foresee a coming downturn in the property market.  The closure of businesses, loss of employment, reduced hours, rental defaults plus the myriad of other inter-linked factors will have negative flow on impacts."

In my opinion:

• Negative gearing will be seen for what it is -- making a loss.  In times of crisis, people understand the risk even more.  Going forward, investors will be less likely to take on the risk of negatively gearing investment properties.  So prices will fall.
• One bedroom apartments and apartments with no balconies will be less popular.  Owners and tenants will realise living in (and not leaving) such apartments for a long time is not enjoyable. The virus or similar will come back again.
• Large over-crowded apartment buildings with less elevator capacity will be less popular.  Some buildings have now implemented "two people only" rules for elevators.  Being in a large Meriton building, on level 50, with no balcony, and crowded elevators, with 12 small apartments per floor, does not look appealing.
• Apartments with balconies and views will be more appealing.
• Older people are likely to die.  This may create a surge of supply, especially in areas where older people live.
• There will be less foreign students, and so less renters for city apartments.
• There will be less foreign buyers.
• Australian beach resorts will become more popular, helping beach vacation rentals.  International and cruise vacations will become less popular.
• People are earning less, eating into savings (which were possible deposits), less likely to change jobs or move place of residence and be more risk adverse.  Prices (values) will decrease and stay flat for a while.
• Off the plan apartment sales will drop off.
• Renters will choose higher quality apartments over smaller apartments designed for foreign students.

Queens Wharf Residences Brisbane

The marketing campaign for Queen's Wharf Residences in Brisbane (part of The Star casino development) has launched, with off-the-plan sales starting soon.  See https://qwresidences.com.au/

This will be a 64 level residential tower.  It is not riverfront, but on George Street.

Before buying, it is worth looking at this Kindle Book:  Buying An Apartment Off The Plan in Queensland

Brisbane property prices to improve?

Brisbane is well placed to take over as the best performing capital city housing market over the next five years.  Dwelling values across Australia’s third largest capital city have risen at the annual rate of 1.2% of the past decade; that’s half the pace of inflation and dramatically lower than Sydney or Melbourne where annual gains have averaged 6.3% and 5.9% over the past ten years.

Importantly, there are a variety of economic and demographic factors that are likely to support improving market conditions across Brisbane including economic and demographic trends as well as a worsening performance across the larger cities of Sydney and Melbourne which will provide a lower relative benchmark for Brisbane.

Although Brisbane looks primed to experience an improvement in housing market conditions over coming years, I wouldn’t necessarily expect that the rate of growth in Brisbane will reach the heights of those experienced in Sydney and Melbourne over recent years.

See https://www.corelogic.com.au/news/could-brisbane-take-over-best-performing-capital-city-housing-market-5-years

No surprise - Brisbane apartments cheaper than Sydney

Sydney apartments are way more expensive than apartments in Brisbane.

Sydney’s median apartment value currently sits 98.3% higher than Brisbane’s median apartment value, which is the largest premium since late 2002.  The average premium for a Sydney apartment over Brisbane has been recorded at 54.1%.

Does this mean that Brisbane apartment values will rise as a result of this difference?  CoreLogic does not think so:

"We would expect the Sydney premium to reduce over the coming years as values decline however, we also believe that historical premiums for Sydney relative to other capital cities don’t reflect the likely differentials in the cost of housing going forward.  That is to say we expect that the cost of housing in Sydney and Melbourne will continue to be higher relative to other capital cities than it has been in the past."

See CoreLogic Report

Vacancy Rate of Brisbane Apartments

The vacancy rate of inner city Brisbane property has increased to above 4%.  This is regarded as being unhealthy for landlords.  Rents are decreasing - and tenants are asking for rent reductions on renewals.

See http://www.beesnees.com.au/2018/02/brisbanes-rental-vacancy-rate-4/

REIQ Quarterly Report

The real estate agent's industry group, REIQ, released a report this week into the Queensland residential property market.  From the REIQ press release, which is always somewhat optimistic:

"THE house market has rebounded from a period of low listings with a surge of stock, in some markets as much as 100 per cent more in the March quarter, according to the REIQ’s March Quarter Queensland Market Monitor.

Looking at southeast areas where the market is performing well, the Gold Coast and Sunshine Coast were the two strongest performing markets in Queensland again this quarter, outperforming Brisbane (as they did last quarter).

The Sunshine Coast continues to grow and, along with the Gold Coast, these centres formed the top two most popular migration destinations for people moving within Australia in 2016.   More than 12,000 people moved to these two coastal destinations (excluding overseas immigration) last year, according to ABS data.

Noosa was the top annual median house performer with an annual growth of 9.2 per cent compared with March 2016. This has positioned Noosa as the second-most expensive house market with an annual median sale price of $615,000.

The unit market over the past 12 months has begun to show signs of easing, with the annual median unit price falling 1.9 per cent to $445,000.  However, that slight easing doesn’t represent the whole story for Brisbane’s unit and townhouse market.

There are suburbs that have done well this quarter, including Albion (up 5 per cent since December), Bulimba (up 26.8 per cent this quarter), Indooroopilly (up 18.5 per cent), New Farm (up 7.5 per cent), Rochedale (21.1 per cent), Taringa (4.8 per cent) and Toowoong (up 3.2 per cent since December).  [Editor note:  this is likely because of new apartments being sold for the first time, not price increases in existing apartments.]

  

Brisbane LGA suburbs where units have done well over 12 months and five years include:

• ·       Annerley
• ·       Balmoral
• ·       Bridgeman Downs
• ·       Coopers Plains
• ·       Coorparoo
• ·       Darra
• ·       Greenslopes
• ·       Highgate Hill
• ·       Manly
• ·       Manly West
• ·       Mount Gravatt
• ·       Norman Park
• ·       Red Hill
• ·       Richlands
• ·       Rochedale
• ·       Toowong
• ·       Wakerley
• ·       Wynnum

Units are becoming more popular with Queenslanders. CoreLogic has reported that 17 per cent of Queenslanders live in an apartment, just behind New South Wales’ 22 per cent and ahead of Victoria’s 15 per cent.

“The REIQ is confident the long-term future of apartments is secure and particularly in the inner-city where such exciting projects as Queen’s Wharf and the Howard Smith Wharves are adding to the night-time economy of inner Brisbane.  Added to South Bank, Milton’s Caxton Street and the Barracks, the West End, and Eat Street Markets, this is a diverse and vibrant inner-city and the demand for inner-city apartments will continue to grow over time,” Ms Mercorella from REIQ said.

REIQ says Brisbane apartment market is falling

According to the REIQ, which is a real estate agents' industry group, the Brisbane apartment market is falling.

Five months supply

A report from RP Data CoreLogic today says that there is about 5 months supply of property for sale in Brisbane.  This does not include off the plan properties that are for sale.

The months of supply figure compares the number of unique properties advertised for sale to the number of transactions in the market.  The analysis provides an insight into how long it should take to clear the volume of stock currently available for sale.  Off-the-plan housing stock is typically not advertised for sale as individual properties and as a result is not included within this analysis.

Based on the relationship between demonstrated housing demand and advertised stock levels, CoreLogic is seeing relatively more stock available for sale compared to demand for that stock across the capital cities at the moment.

Uncertainty

From RP Data CoreLogic:

There’s a lot of uncertainty in the property market right now.

On the one hand property has boomed in Sydney and Melbourne triggering concerns of overvaluations and a property bubble.

On the other hand property has dropped in Brisbane (down 9.1% from its 2008 peak) and Perth (down 18.5% from its 2007 peak) because of a mining downturn.

Brisbane Skyline Changes

This is a good article from the Brisbane Times:  Brisbane's Skyline to Be Transformed in 2022

It has interactive photos with sliders that show the likely changes.

Brisbane Rental Yields

The resale market for apartments in Brisbane at present is slow.  There are bargains if you are buying, and it is taking a long time to sell if you are a seller, and often the seller is disappointed with the sales price. 

At present, for apartments in Brisbane that are being sold resale (that is, not by the developer off the plan), the sales prices are decreasing.  Rents are also decreasing, as there is an oversupply.  This is a generalisation, and does not apply to all apartment types or all areas.

I have recently studied the Indooroopilly area.  The gross rental yields are good.  For reasonable quality 2 bedroom apartments, prices have dropped about 10 to 15%.  So apartment that were selling for $485K to $530K last year are now selling in the range of $425K to $500K, with most sales being about $450K to $465K.  Some vendors are selling for more than $100,000 less than what they paid.  The rents for these apartments have dropped from a range of $520 to $560 a week to $480 to $510 a week.  New developments with smaller but modern apartments are doing promotions such as 4 weeks free rent.  On an apartment that I own in Indooroopilly, I am getting a gross yield of 5.7% , where the lease was signed last week.  

Small city apartments are struggling, esp those that are rented in short term rental pools.  I have seen one apartment building in an Accor rental pool where net returns (after rates and body corporates etc) on large one bedroom furnished apartments have dropped from $13,000 a year to less than $5,000 a year. 

Property Prices Double Every 10 years?

I have been to seminars by property agents and promotors, where they say that property is a sure investment because property prices double every 7 to 10 years.  CoreLogic debunks that "rule".

"Melbourne is the only capital city housing market in which home values have doubled over the past decade.  In fact, many cities are a long way from having doubled with values in Brisbane, Adelaide, Perth, Hobart and Canberra having all increased by less than 50% over the past decade."

See CoreLogic Report

Brisbane Apartments and Units perform poorly

CoreLogic (RP Data) has released its recent monthly housing report.

"According to Mr Lawless, the strongest growth conditions outside of Sydney and Melbourne have been in Brisbane where dwelling values were 3.9 per cent higher over the year. Sydney and Melbourne values continue to boom, the next best performing city, Brisbane, has seen dwelling values rise by just 3.9 per cent over the past twelve months. Based on the median dwelling price, Sydney prices are now 72 per cent higher than Brisbane’s and Melbourne’s are 24 per cent higher,” he said."

However, apartments in Brisbane performed very poorly when compared with houses.  In fact, apartment values have declined in Brisbane.

Brisbane apartment prices (to 31 July 2015):

July 2015 - down 1.9%

Quarter - down 2.3%

Year to Date - down 0.8%
Year on Year - down 2.5%
Median price based on settled sales of Brisbane apartments over the quarter - $380,000